Autumn Budget opinion: A missed opportunity to elevate the UK as an international place of business

Whilst there was limited expectation of any major announcements in connection with the corporation tax regime, the much trailed corporate tax roadmap together with a number of detailed changes have been published.

On first read the corporate tax roadmap is very much a “steady as she goes” plan, which should provide the certainty and medium term stability, which the business community has asked for.

The commitment to capping the CT rate at 25% for this parliament is made together with a commitment to “ensure to UK’s regime remains competitive”. Clearly yield rather than rate is the key so whether this leaves the door open to reduce the rate in order to increase yield, in particular given the low CT rate in Ireland, our nearest fiscal competitor, remains to be seen.

The UK has a competitive fiscal regime for the location of international holding companies, which together with our treaty network, makes the UK a very attractive place for a multinational business to site its headquarters. The roadmap commits to maintaining the “structural components” of this regime which is a positive message.

There is a commitment to maintaining the core structure of the current capital allowance, R&D, Patent Box an intangibles regime which again provides certainty of the fiscal outcome from an investment decision perspective.

The roadmap contains an intention to consult on a number of transfer pricing matters, including lowering the threshold for exemption and removing UK-UK transfer pricing.  In applying an SME exemption, the UK is not currently internationally aligned from a threshold perspective so lowering the threshold to protect the UK’s tax base would not appear unreasonable, notwithstanding the additional compliance costs which may result. Brexit has given the UK the opportunity to remove UK- UK transfer pricing which in practice is broadly tax neutral, so removing it would reduce the compliance burden of having to complying with the TP rules where there is little or no tax risk. 

The UK has been at the forefront of introducing the OECD’s Pillar 2 rules and the roadmap underlines the commitment to this as well finding an international solution to the introduction of Pillar 1. In support of the former there have been separate announcement of the introduction of the “undertaxed profit rules” and technical changes to the way in which multinational and domestic top up taxes are calculated.

Digital services tax will remain in place until the Pillar 1 position has been resolved.

Overall, there are no real surprises in terms of expectation, but one questions whether the commitment to not change much over the next 4 or 5 years is enough to encourage the investment needed to create growth. There is little in the way of further incentive to choose the UK as a place of business, so this is a missed opportunity to put the UK in much more internationally competitive position, for example through an actual commitment to reduce the headline rate towards the global minimum rate of 15% and extend the ability to claim full upfront tax allowances on a much wider asset base.